Yields on U.S. Treasury bonds with longer maturities experienced a decline on Friday as investors assessed recent economic data and anticipated upcoming inflation indicators. The yield on the 10-year Treasury note dropped by 1 basis point to 4.118% at 6:32 a.m. ET, while the 30-year bond yield also decreased by 1 basis point to 4.365%. In contrast, the 2-year Treasury note’s yield remained unchanged at 4.316%. Notably, yields move inversely to bond prices.
This shift followed the release of fourth-quarter gross domestic product (GDP) data for the U.S., which surpassed expectations by exhibiting annualized growth of 3.3%, exceeding economists’ projections of 2%. Despite robust GDP growth, inflation trends continued to decelerate, with the core personal consumption expenditures (PCE) price index, a key metric monitored by the Federal Reserve for longer-term inflation insights, registering a 2.7% increase on an annual basis. This marked a decline from the 5.9% reported a year earlier.
Investors are keenly observing economic data for signals regarding potential interest rate adjustments by the Federal Reserve. Despite the strong GDP performance, underlying inflation appears to be slowing, with the annualized core PCE inflation reaching the Fed’s 2% target in the fourth quarter, according to Paul Ashworth, Chief North America Economist at Capital Economics. As a result, the prevailing sentiment suggests that an early spring rate cut by the Fed remains the most probable outcome.
Scheduled data releases for Friday include the December Personal Consumption Expenditures Price Index, a favored inflation gauge for the Federal Reserve. Economists polled by Dow Jones anticipate a 3% year-over-year increase in core PCE prices for December. Investors will closely monitor these indicators for further insights into the Fed’s potential actions regarding interest rates.